On August 9, 1988, Oilers fans faced their own personal Armageddon, when it was announced that our North Star, Wayne Gretzky, had been traded. I was outside riding bikes with my brother, and I can still hear my sister screaming out to us, “Gretzky has been traded!”—prompting us to drop our bikes, prostrate ourselves in front of our 20-inch TV, and stoically hold back our tears as we absorbed the news. It is no exaggeration to say the city of Edmonton went into mourning, as even Sports Illustrated’s 30 for 30 dedicated an episode called “King’s Ransom” to the event, where Edmonton was – just for a moment – the focus of the sporting world. To this date, the mention of Peter Pocklington’s name will be met with a scowl by any true-blue Oiler fan of a certain era (and even Janet Jones does not get a pass). Any Oiler’s fan worth their weight can tell you where they were “when they heard the news…”. At the time, that was the end of the innocence for many hockey fans. Looking back today, that event pushed hockey into the arena of big business, as it became relevant to the larger American consumer market.
Still we persevered in our love for the sport, and for our team. In the spring of 1990, five of my friends and I made the most of our school lunch break. We gathered up our hockey cards, grabbed some Old Dutch chips and SunRype juice boxes, and made our way to the lunchroom. There, we doled out our life savings (for the $10 buy in) to take part in what would become the first of an annual tradition for us: The Hockey Draft. We were a motley crew, united by our love of hockey. Our home-team, the Edmonton Oilers, was still riding high on the crest of having won four Stanley cups in six years.
I would like to tell you that to draft our personal “dream-teams” we relied on old-fashioned research techniques: scouring newspapers and listening to radio and news. Did we gather insight from Chris Cuthbert and Ron Mclean, during Hockey Night in Canada? Um…not really. It would be more honest to say that while the Northern Pikes were telling us “she ain’t pretty she just looks that way,” – we were focused on which hockey players we really loved (and who would maybe earn us a few points that playoff season). We understood very little about the process of selection, and in fact, our draft ended with one of our participants (we will call him “Number 6”), smugly announcing “Rick Toe-Shay” as his last pick—thinking he had pulled a fast one on all of us by uncovering a hidden gem. Though Rick Tocchet, of the Philadelphia Flyers, was a strong player, Number 6 neglected to do his research, as the Flyers did not make the playoffs that year. In the spirit of 14-year-old boys, we made him keep Rick Toe-Shay, knowing it would cost him the draft, and to this day, we continue to remind him of his greatest draft pick.
My love of hockey drafts only continued to grow, after this first experience. I continued to participate in this annual draft with my friends from junior high, and I looked for more to join. I was happy to find that AIMCo, one of my former employers, had a hockey draft. With the birth of the internet, it became so much easier to gather information on players, as I was beginning to realize that I needed to stack my teams with not only players I loved, but also with players I loved who would perform. As the years moved on, AIMCo grew into a much larger organization, and their draft evolved into more of a hockey “pool”, with the goal being more social and inclusive of all staff, where everyone (not just hockey ‘experts’) had a chance to win. This change, where research was less impactful to the win, dulled my enjoyment to a degree. In 2008, I moved overseas, where the time difference and having a young family made it very challenging to participate in hockey drafts (although I did try for the first few years).
Fast-forward to Sunday evening, I found myself back in Canada, with a smile on my face, sitting down to my first hockey draft in years. Reunited with my Old Dutch chips, and trading in my juice box for a can of Banded Peak, I found myself with some time to reflect, while I waited for the other 11 participants to come on-line. It was special to see that five of our original group of six had committed to be part of this draft – and though the faces have aged, and the hairlines have all gone north – thirty years later, everyone is basically the same. Number 6 was MIA, and in his honour we commissioned this draft “The Rick Toe-Shay Classic”. It seems that Number 6 has finally realized that he has no expertise in hockey drafts and is unwilling to waste $20 (please note the buy-in has doubled), just for the sake of nostalgia. A perfectly rational decision, from an investment perspective. Investing is, after all, what we do at WealthCo.
The winner of the 1990 draft was the kid who went all in with nine Oilers. Unexpectedly, the Oilers won their last cup that year (although as most Oiler’s fans will tell you…2021 is their year!). Though I cannot say decisively who I picked, I suspect I diversified my team, as I believed without our star player, shining bright and giving direction, the Oilers had no chance (Google tells me that at that time, the Oilers had 90 points in the Smythe Division, trailing the Calgary Flames who had 99). As I grew older, and information technology blew up, my sports fantasy pool strategy came to be guided by research and data analysis. Though I didn’t know it then, I began to intuitively use due diligence, much like investors do, in stocks and bonds, using information as the “edge” with which I built my teams.
With a less extreme time difference, I joined my cousin’s 13x13 (13 hitting and 13 pitching categories) fantasy baseball draft, with his colleagues in Southern California. This allowed me to carry on honing my methodology, and I turned my energies to researching baseball players. Upon joining the new group, they assumed that I was “the fish”, inexperienced and easy money. I started by building quantitative models, gathering data from three to five sources, to guide my strategy, and I watched the more experienced participants. The commissioner of the pool was a life-long Dodgers fan, and I noted how his emotions, often impacted his decision-making, detrimentally, in team management. He was not alone in this, and I saw many other participants make similar emotion-based decisions. Each year I took part in the draft, I came prepared to win – and I discovered early on which manager would be my main competition – as each year Dennis consistently placed in the top three. Did he have a better model or was it simply that he was able to make decisions without being influenced by his emotional attachments? Although Dennis was a die-hard Mets fan, he built team after team, without a single Mets player – he was able to set aside his feelings to field a better team. Each year he would remain disciplined and follow his model and not his heart. As the lone Canadian, it brought me great pride to win ONCE in the five years I participated. I attribute the win to Shane Victorino, my last round pick. I could not have known he was going to have his break-out year, but I feel strongly that you need to have the skill and research to position yourself just right, so Lady Luck can come and give you a push. Very much like investing.
In past years, to prepare for a draft, I would spend hours looking at data and numbers. With the internet, it has become all too easy to pull statistics and information from multiple sources and build a model. If a draft would take three hours to do, I spent double or triple the time, ‘behind the scenes’ researching to prepare. I know all my friends were doing the same if they wanted to win.
Times have changed, and as they say, “experience is the greatest teacher”. My preparation for the Rick Toe-Shay Classic amounted to relying on the experts by using a mock draft list from The Hockey News. At present, I have a basic knowledge of the players on the Oilers and a few big names from the other teams. I do not know who was injured, who played on which line, and how the divisions were realigned. As such, my insights would not be unique.
Sports, like many aspects of society today, are “professionally managed” and operate like a business, with decisions made increasingly using data and quantitative analytics. Under the leadership of Billy Beane, the Oakland A’s were one of the early adopters of using data to guide decision-making. As the General Manager of a small-market team, Beane was tasked with fielding a competitive team, while the ownership group moved player-salary expenditures, from the highest to one of the lowest in baseball. Their “edge” was moving from the dependence on the qualitative “gut feel” of scouts, to using data analysis to inform decision-making. The team effectively found an “inefficient” market for baseball talent and used data to exploit these inefficiencies. The A’s would make the playoffs in four consecutive seasons from 2000 through 2003, with one of the lower payrolls in baseball. As more teams adopted data analytics, the market for talent has become more efficient. In the absence of an explicit salary cap, Major League Baseball continues to be dominated by teams that spend more on on-field talent. Michael Lewis’ book “Moneyball”, now a major motion picture, is well worth the read. Like sports, as financial markets get more efficient, sophisticated investors will focus their energies on extracting excess returns from less efficient markets. WealthCo’s investment philosophy of emphasizing investments in Private Markets, where information is not required to be publicly available, enables us to build portfolios that can generate incremental returns, relative to Public Markets.
From the Oakland A’s experience, we can study the influence of culture on an organization. Beane had to change the existing culture of the organization, which required a shift in mindset to adapt to his new methodology of managing a baseball team. Cultures that do not challenge conventional wisdom or question the status quo become stagnant and less able to compete with firms that encourage innovation and growth. When we think about “best-in-class” asset managers, they are not only well resourced with time, money, and people. They cultivate cultures of excellence and are relentless in maintaining their competitive edge. The individuals that lead these firms are always hungry, because unlike sports, where there is only one Lebron James, competitors relentlessly pursue the incumbent industry leader. Competition is a constant in a market economy, where the actors are continuously required to put in the time, effort, and capital to stay one step ahead.
WealthCo is proud to work with firms that continue to push and innovate, building on the moats that enable them to be industry leaders. On a recent update call, I was told there is “no satisfaction in sitting still,” by the President of one of the world’s largest asset managers. It is easy to see these words are the philosophy which drives their organization. The firm’s continual commitment to acquiring talent and their investment in systems, processes, data analytics, and technology, all contribute to enhanced decision-making.
So back to the Rick Toe-Shay Classic — I will not have the results of picks for several months and I promise to provide an update. However, I can tell you that I allowed myself to do what I have advised many of our clients to do — I stepped back and exercised some discipline around investing (in my draft team), by removing myself from the equation and trusting the “experts”. Using the experts from The Hockey News list as my guide, I picked exclusively off their list, with slight adjustments only if necessary, and never went “off the board”. Without emotion or bias, I ended up acquiring no Oilers and four players from the Maple Leafs, which would be a hard sell to any hockey fan outside of Toronto. I saw a hint of Lady Luck, as every time it was my pick, the top available player was never from the Calgary Flames. It has taken me a few years, but I am finally able to take my own advice, that investing should be left to the experts.
Peter Lieu, CFA
Chief Investment Officer
WealthCo Asset Management